Dual payoff scenario warnings on credit card statements elicit suboptimal payoff decisions

Abstract

U.S. Federal regulation from 2009 requires credit card companies to convey information regarding payoff scenarios, i.e., details such as total amount paid and time to pay off when only a minimum payment is made (over time). Across seven studies, the present research shows that consumers who were given a dual payoff scenario (i.e., how much is paid in total based on the minimum payment and also based on a 3-year payoff window) on credit card statements recommended lower payments than those given a single payoff scenario (when the 3-year payment amount was less than what they would have paid otherwise), and were less likely to pay off the balance in full. The effect is driven by a tendency of consumers to infer that the 3-year payment amount is the most appropriate. The dual-scenario effect is minimized by an intervention that draws attention away from the 3-year payment amount. Theoretical and public policy implications are considered.